Xcite Energy moves from despondency to hope!

Quite a day for Xcite Energy! After showing the usual pattern of daily decline with a drop to 64p this morning, it is now looking rather lively with a 9% gain to 74.5p. Plenty of rumours of a StatOil takeover bid, but all unsubstantiated. The rumour mill has started that’s for sure, long may it continue!

Despite some positive updates over the last couple of months from the company’s Bentley North Sea field, culminating with the start of the extended well test this week, the share price has plummeted to 52 week lows valuing the company at less than £200 million. At the beginning of 2012, Xcite’s 2p (proven and probable) reserves were confirmed as 116 million barrels, making it one of the largest unexploited fields in the North Sea.

On 22^nd June, the company announced a $155 million reserved based lending deal with Royal Bank of Scotland, Societe Generale Corporate & Investment Bank, GE unit GE Energy Financial Services, Nedbank Limited and Britannic Strategies Limited (a subsidiary of BP plc). This was preceded with a placing at an initial price of 80p with Global Resource Funding Partners LLC of 30 million units (a combination of shares and warrants). These deals, together with previous funding from Esousa and Socius, mean that Xcite is nearly completely funded for phase 1b of the Bentley Field development.

Following the initial flow test in December 2010, coinciding with a large chunk of Director sales, the price reached £4 but shares in issue have risen from around 150 million in 2010 to nearly 300 million this year. Despite this, Xcite retains 100% ownership of the Bentley North Sea field.

For the last 2 years, private investors have seen the price collapse with a couple of blips up coinciding with £3 million of director share buys in mid-2011 by Rupert Cole and Stephen Kew at £1.18 and £1.28 and funding announcements. Bit of pain for Cole and Kew when the shares hit 64p today!!

Certainly the arrival of Esousa, Global partners and Socius has coincided with enormous volatility and downward pressure on the share price, possibly so that warrants can be grabbed at bargain prices. Nothing is straightforward or transparent in AIM!

To remind those who have kept the faith:

1. Xcite have a 100% interest in the Bentley North Sea heavy oil field
2. It was proven to flow under constrained conditions in December 2010
3. The Rowan Norway rig has completed the well for the extended well test and oil is flowing to the Scott Spirit tanker for a period of up to 90 days
4. Following the EWT, the company will apply to the Department of Energy and Climate Change (DECC) for approval for the full development of the Bentley field
5. The company is almost fully funded for stage 1b of the field development

What next? The EWT will allow the oil reservoir to be comprehensively modelled and recovery/flow rates maximised. The company is looking for a farm out partner and it is pretty certain that the EWT will be a success and this deal will be completed by the Autumn when the Rowan Norway moves off Bentley. Investors at around 70p have the potential for Xcite to go to full production by the end of 2013 or be swallowed up by the likes of StatOil of Norway who have adjacent heavy oil fields they are developing with multi billion pounds investments. Interesting times ahead!

When sentiment is rock bottom like this week, this is the time to be piling in. The big boys feed off private investor fear, stop losses, over leveraged positions and hence margin calls. This is classic AIM at its very worst!!

Contrarian Investor UK

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